'Barring private equity from the healthcare sector is very unwise'.

There are plenty of opportunities for private equity investors in the healthcare sector. Private equity brings the innovation and entrepreneurship that the sector so desperately needs and thus an accessible and more affordable healthcare system, says Ewout Prins of investor Holland Capital. He therefore believes that banning private equity from the sector is very unwise. “Some political parties present potential risks, which are nuanced by researchers, as a major danger, while the positive story is not told.”

Holland Capital is one of the oldest investors in our country. More than 40 years ago, when private equity was barely known, the private equity company started a fund that invested in promising companies in various sectors. It was pioneering. For example, founder Rolf Deves still had to explain to banks how private equity works. How different the market looks now. The business model is appearing in more and more places in society. Sometimes this leads to social criticism. Some political parties believe that there is no place for private equity, especially within the publicly funded healthcare sector. The House of Representatives recently even adopted a motion that advocates banning private equity investors from the sector. “That would be very unwise,” says Ewout Prins, who has been working at Holland Capital for 24 years and has been managing partner since 2009. 'As a society we face the major challenge of keeping healthcare affordable and accessible. Healthcare costs are already skyrocketing – private equity brings innovation and entrepreneurship that the sector so desperately needs.'
Prins finds it very frustrating that private equity investors are constantly 'bashed', while various studies show that companies with a private equity shareholder often perform better on matters such as governance, innovation, effectiveness of healthcare and financial results. 'It is high time that politicians start telling the honest story. Every Dutch person benefits from healthcare costs remaining manageable.'

Why is the healthcare sector interesting for private equity investors?
'It is a large market with providers who do not always excel in innovation and entrepreneurship. There are plenty of opportunities for a private equity investor. By bringing more entrepreneurship into organizations and making processes run more smoothly, performance in terms of healthcare quality and efficiency improves. This ultimately increases the value of a company.”

What investments does Holland Capital make in healthcare?
'We invest in healthcare providers, such as clinics and practices, but also in developers or distributors of medical products and in companies that develop ICT for healthcare. We invest growth capital in medical startups and support corporate acquisitions and consolidation through buyout capital. In addition to the healthcare theme, Holland Capital has focused strongly on technology from the start. The investments often lie at the intersection of both themes, because digitalization is essential to realize innovation in healthcare.'

What does the collaboration with healthcare companies look like?
'We work closely with the entrepreneurs or management teams. We advise on strategy and on financial and operational management. This makes us a valuable sparring partner. The organization can often make a step towards professionalization. We have specialists who can provide guidance in improving governance, for example, or in an acquisition process and subsequent integration.'

Last year, healthcare costs exceeded 100 billion for the first time. How do you, as an investor, contribute to better and affordable healthcare?
'We use our knowledge at healthcare providers to organize processes more efficiently. We introduce innovative products or smarter IT solutions. This way, the organization can often offer patients better care at comparable costs, while waiting lists are also shorter. We also focus explicitly on employees. The healthcare sector is struggling with major staff shortages, while the demand for care is only increasing. Healthcare organizations must therefore remain attractive as employers. They will have to invest in employee development and increasing job satisfaction. The preconditions are also important. An organization creates satisfied employees more easily if processes run smoothly. Thanks to innovative tools, healthcare professionals can work more efficiently and have more time for care. This simultaneously increases labor productivity. And that means that more patients are helped.'

You invest in healthcare, a sector that is partly funded with public money. How do you deal with this social responsibility?
'We are well aware that we have a major social responsibility on our shoulders rest. That is why we pay a lot of attention to governance. This simply has to be in good order within the organizations in which we participate. Not only is there a supervisory board or a supervisory board, we also ensure that both staff and patients have a voice. We also maintain close contacts with paying parties in healthcare, such as health insurers and municipalities. We try to continuously improve the organization with the feedback from all these stakeholders. A company is only good if its employees and patients are satisfied.'

Critics believe that the healthcare sector does not benefit from profit- or return-hungry commercial parties, such as private equity parties. It is alleged that these investors are draining taxpayers' money from companies. What do you think of that?
'Health care faces major challenges. Due to the aging population, not only is the demand for care increasing, but the number of healthcare professionals is also decreasing. In addition, healthcare costs will increase drastically. Innovation, more efficient business operations and higher labor productivity are necessary to be able to offer care to every Dutch person for an acceptable price in the future. Investors with knowledge of the market play an important role in this. They ensure that the necessary innovations and process improvements are implemented.
There is now often the impression that investors invest in a healthcare organization to get as much money out of it as possible. That is patently incorrect. We do not pay dividends and do not rip the organization apart. On the contrary. We invest in healthcare providers to make them more innovative and effective. It leads to satisfied patients and employees, which causes the organization to grow and also increase in value. For us, this value creation is ultimately relevant, because we sell the company after about five to seven years. The company often ends up in the hands of a larger investor who can achieve the next growth spurt.'

Can you give an example?
'In the past we have invested in Opdidakt, which focuses on children with learning and development problems. The company distinguished itself thanks to innovative methods and had a lot of potential. We supported the entrepreneur in opening new branches and making acquisitions. This not only increased the size of the company, but also the quality of care. We also gradually collaborated with health insurers and municipalities. When the company had grown considerably in the South Holland region, we sold the company to a larger investor. This added other companies, so that Opdidakt can now offer appropriate care to children with learning and development problems throughout the Netherlands. A third, even larger investor later added other mental health organizations. Opdidakt is now an important player in youth care.'

Yet private equity in healthcare is often under fire. The House of Representatives recently adopted a motion calling for private equity to be banned from healthcare. What would you like to say to the MPs who voted in favor?
'Holland Capital recently participated in a number of studies into the role of private equity in healthcare. These investigations were carried out at the request of the House of Representatives. As an investor, we welcome such initiatives, because they allow for an honest debate. At least, that's what we thought. The conclusions of the first study that focused on youth care are only positive. For example, healthcare companies owned by a private equity party perform better on matters such as governance, innovation and financial results. The quality is also high. Patients describe the companies in question as professional and innovative and believe that the innovations in question are essential to move the sector forward. Yet this positive story is ultimately not told in the House of Representatives. How can that happen? The study defines how high the potential risks are of various companies active in healthcare. Private equity investors score poorly on a number of these risks. For example, private equity companies often have a more complex financial structure than regular companies. There's nothing exciting about that. When a private equity party invests, it usually does so through a holding company. These potential risks are nuanced in the report - the researchers note that this does not have to be a problem. Nevertheless, some political parties manage to present these potential risks as a major danger. They submitted a motion arguing to ban private equity parties from healthcare. This motion was adopted with 85 votes.
I would like to urge the relevant MPs that they must base their decisions primarily on facts. The positions taken now mainly come from gut feeling.

Of course it is important that healthcare companies comply with legislation and regulations. That they provide quality care and are transparent. Parties that do not do this must be dealt with firmly. This applies to all healthcare companies and all shareholders involved, whether they are private equity investors or not. I do not understand why a certain group of shareholders should be excluded. Certainly not if it has been shown that they can make a positive contribution within the healthcare market.'

Will sentiment in politics change, do you think?
'The results of a more extensive, sector-wide study into the role of private equity in healthcare are expected soon. We also participated in this research. I expect that this report will also provide a positive assessment of the role of private equity parties. We have the confidence that the House of Representatives will come to terms and recognize that an accessible and affordable healthcare system is more achievable with private equity.'

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